If the Tech Stock Sell-Off Turns Into a Bear Market, History Says This Investing Strategy Has Never Failed

Tech stocks were routed last week after a blue wave in the midterm elections. There was plenty already bubbling beneath the surface, and a new government that could be hostile to tech growth set off alarm bells. Since peaking about a month ago, the S&P 500 is down almost 4%, while the tech-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) is down nearly 9%.

The tech sell-off could be a brief dip that rebounds to new highs, or it could turn into a bear market. In other words, no one knows what will happen next. While that's always the case, the underlying political and economic factors affecting the market are intensifying, increasing the likelihood of volatility and a market correction.

Investors who've never experienced this can feel fear, and even investors who have been there before can feel anxiety watching their holdings plummet. If you're not sure what to do right now, this one investing strategy has never failed.

Don't panic

First, a definition. Technically, the market turns bear when it's 20% off its recent high. When it happens, the worst thing you can do if stocks start to fall is sell. That turns paper losses into real losses, whereas if you hold on, the odds are that your stocks will rebound and go higher.

The last bear market was in 2022, and it lasted for most of the year. The Nasdaq lost 35% of its value in total by the time it bottomed out. Since then, it's up 150%.

Image source: Getty Images.

What you need to do in a bear market is hold on to your stocks and wait it out. This is even more important when the market is volatile and could spring back up at any moment. It could rise again next week, but if you've sold, you won't get your money back.

Consider that history is on your side. In the 12 months following midterm elections going back to 1950, the S&P 500 has posted a gain every time, with an average gain of 15%.

Taking that a step further (back), since the end of World War II, the S&P 500 has delivered a gain 74.7% of the time. It lost value in consecutive years only twice (and once three years in a row), but it also posted gains of at least four consecutive years five times.

Don't try to time the market

Holding on through the difficult years has led to fabulous wealth. And this holds whether investors have found the optimal time to invest or not.

For example, the investment company Charles Schwab studied five theoretical investors who had $2,000 to invest annually over 20 years. One had perfect timing; one invested on the first day of each trading year; another invested on the first of each month; one had exceptionally bad timing and invested only at market peaks; and the fifth shunned the stock market in favor of Treasury bills.

The investor who timed everything right had the best return with $186,000. But interestingly, the second and third investors did almost as well, coming away with $171,000 and $167,000. And the one with awful timing still walked away with $151,000.

The only investor who suffered was the one who skipped the market altogether; the Treasury bills generated only $47,000 over 20 years.

So, you don't need to time the market to benefit from its compounding over many years. If you invest consistently and tune out the noise about market ups and downs, your money can compound over time and grow into a solid nest egg.

There's still time to make a move

One parting word: you can still make moves now to protect your portfolio during the rough years. If you're still loaded up on hot tech stocks, you may want to move some of your funds into dividend stocks and value stocks that can perform well under pressure. And if you might need some of your cash in the near future, it could make sense to sell a portion of your stocks before a bear market.

Charles Schwab is an advertising partner of Motley Fool Money. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short September 2026 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.